Point: Some pols ignore supply and demand to make hay from higher gas prices

Thursday

May 31, 2018 at 8:04 PM

In this week's Point/Counterpoint writers are addressing the question: Are politicians exploiting high gasoline prices for political gain?

As we enter the summer driving season, some politicians are attempting to peddle a false narrative through a misinformation campaign to reduce one of the most fluid and complex global markets into a political talking point.

What they ignore is not only the fundamental importance of natural gas, oil and the thousands of products created from them to our lives but also basic economics — starting with the laws of supply and demand. Here are a few facts:

Domestically, our country is producing more energy than ever before. Between 2007 and 2017, the United States went from producing 33 quadrillion British Thermal Units of natural gas and oil to current production levels of more than 52 quadrillion — a 60 percent increase in a decade, making our nation the world's leading producer of natural gas, oil and refined products. So the supply side of the equation has been stellar.

Still, oil is a global commodity and geopolitical factors, including the recent instability in Venezuela, the continued unrest in Syria, the rumored coup attempt in Saudi Arabia and the uncertainty regarding the status of Iranian sanctions has created doubts about future global supply — a reminder of how potent external forces can be in the worldwide energy market.

Fortunately, for the last several years, American energy abundance has helped to stabilize prices for U.S. consumers. However, demand for crude both here and abroad continues to increase.

For example, in April the United States' demand for crude oil rose by more than 750,000 barrels per day compared with the same month last year. So while this is a positive indicator of economic activity, it also has contributed to a tightened global oil supply and demand balance that has helped put upward pressure on fuel prices.

Globally, demand continues to outpace supply, steadily shrinking the global energy supply glut and to some extent the cushion provided by the domestic energy abundance we've enjoyed for the last few years.

According to the federal Energy Information Administration, 57 percent of the consumer's price for gasoline has come from the global price for crude oil.

Another factor that has driven increased demand is seasonal variation.

Memorial Day isn't just the "unofficial" start of summer; it also marks the beginning of the summer driving season and with it higher demand for fuel.

For the last several years, the increase in U.S. oil production has helped dampen the effect of increased demand on fuel costs.

Prior to the American energy renaissance, gasoline prices rose by 22 cents per gallon on average during the summer driving season, compared to an increase of just 13 cents per gallon over the past three years.

The fact that domestic oil prices have been more than $7.60 per barrel less than international ones demonstrates the power of a long-term holistic approach to energy policy that embraces responsible U.S. energy production and encourages private investment in energy infrastructure.

That approach can ultimately help cushion the market, put downward pressure on domestic prices and benefit consumers.

However, we're far from done and there are things we must do at home to take better advantage of the American energy renaissance, specifically, encouraging responsible domestic production and ensuring that our energy infrastructure can keep pace with expanding production.

False narratives will not power our cars, heat and cool our homes, advance our economy or provide the countless everyday products that get their start as natural gas or oil.

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